Five insider’s tips for making internet businesses work in Russia

Marina Treshchova5 September 2012

Russia’s an exciting market in terms of growth potential but it can also seem like a badlands for e-commerce to the uninitiated. In this guest opinion piece, Fast Lane Ventures CEO Marina Treshchova (below right) talks us through common perceptions held by foreign investors – which have truth, which don’t – and shares five tips for success.

At the beginning of 2012, Russia became the largest online market in Europe, surpassing Germany in the total number of users online. This growth will be continued and we estimate that by 2015 this number will reach nearly 90 million people. This is an exciting trend for those interested in developing an online business in Russia, especially for international players who are thinking about entering this lucrative but still rather unchartered market for many.

While having regular meetings with potential partners I am often asked how difficult it is to build a business in Russia. Of course, as an experienced entrepreneurial company ourselves, we fully understand all assumptions and prejudices that hold back foreign investors from going for Russia. As the old adage goes, “perception is the truth as we know it” – but we’re proving business in Russia can be workable, profitable and rewarding as well.

1. Russian consumers are easier to excite than those in the US

We are confident that the Russian internet industry is the most exciting place to be operating in at the moment. It is one of the few industries on a global scale where the growth is also reflective of the level of consumer spending in the sector.

In European markets and in the US… they have already experienced almost everything… several times over.”

In European markets and in the US, where consumerism is already well-established, consumer behavior is at a more mature stage. It is becoming more and more difficult to excite people with the introduction of new online products or services, because they have already experienced almost everything… several times over. Consumers in these more mature markets do not tend to increase the amount of money they spend on online purchases and traditionally their choice is mostly price-driven, favouring the less expensive products or services.

In contrast, online consumer behaviour in Russia has changed dramatically. For example, the e-commerce market in Russia was among the top performing in the world and has been growing by at least 25 per cent for the past few years reaching the turnover of $US10.5 billion in 2011.

Russia is now rapidly accelerating its adoption of global online trends. When compared to the European and US internet sectors, Russia is five and 10 years behind these markets respectively in terms of development. The major players across Russian internet are now working to speed up Runet’s growth in order to seize on the opportunities available and as a result, Russia’s internet segment and the companies working in this area are some of the most dynamic.

However, the stark reality is that only a handful of small to medium businesses in the area have the true capability to transform into leading businesses in the internet industry. There are many factors to be considered when launching a company so let us explore a few.

2. Delivering orders can be a challenge

In order to provide online retail customers with an excellent service and to build a very memorable – and of course, positive – consumer experience, orders need to be delivered in a very timely manner. Whilst this might seem like a very basic principle, there are still many smaller players who take an online order from internet users whilst knowing they will not be able to deliver the purchase within the next few days. Russia is a vast country and building an efficient logistics for an e-commerce business is one of the main challenges. An efficient supply chain is not only crucial for businesses profitability, but for its survival as well.

3. Seed funding is easy, bigger rounds are not

This factor is closely connected with another market characteristic: execution (or lack of execution). Many online companies are being launched and successfully manage to attract seed investments but cannot display enough early growth to attract the critical next rounds of funding. They often lack the required level of professionalism, long-term vision and the market knowledge that will allow them to create a customer experience that will be both user-friendly and trustworthy. That’s why finding the right partner within the Russian market is absolutely crucial for ensuring required and timely return on investments.

4. Russia’s regions are where most market potential lies

Another common perception of the market, that often worries investors when evaluating an entry strategy, is the apparent lack of internet literacy (or usage) in the country. It is a common misconception that the majority of growth in internet users is accumulating only in Moscow and St Petersburg. This assumption is far removed from the reality as it is actually the regions which are demonstrating the most dynamic growth rates and thus most of the market potential is concentrated there. At the moment, there are already 12 million people involved in e-commerce across Russia, excluding the two larger cities.

5. Meet the locals and make them partners

Many companies fail to advance in the market because they simply do not take into consideration a variety of local factors that are obvious to someone who has been operating in Russian e-commerce for many years. It is for this reason companies and entrepreneurs should be looking for a knowledgeable partner prior to entering the market.